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8K Filings with the SEC and Their Impact on C-Suite Employees and Severance Negotiations

by | Aug 4, 2023 | Employment Law |

8K Filings with the SEC and their Impact on C-Suite Employees and Severance Negotiations

For publicly traded companies, the Securities and Exchange Commission (SEC) requires an 8K filing whenever there is a change in circumstances related to the company.  Typically, when negotiating a c-suite employee’s exit from a company, sections 2.02, 2.03, and/or 5.02 of the 8K will be implicated and require disclosure.  This is particularly true when the department officer also sits on the board of directors for the company.  In particular, the company will be required to disclose the substance of any disagreement with the departing officer or director and must disclose any information that it has regarding the dispute between the officer/director and the company.

The Role of Demand Letters

Typically, when negotiating a severance package for executive compensation on behalf of a company, the process begins with a demand letter being sent by the employee’s attorney to the employer’s general counsel.  A typical demand letter details the facts and circumstances of the employee’s claims against the company offered to explain why the employee is being forced to leave or is being fired.   Now, the company is on notice of the claims asserted in the demand letter as being a dispute between the leaving employee and the company, and is required to disclose this information on the 8K filing explaining the officer/director’s exit.

Potential Impact on Future Employment

In some instances, where company decisions are largely driven by certain leadership personalities, it is entirely likely that a company will insist on disclosing their alleged grounds for the officer’s termination in the 8K filing.  The 8K is a publicly filed document easily accessible through a simple google search.  Future employers are able to read about the grounds for termination of the officer and director which is likely to impact the employee’s future ability to find a new position. Similarly, a detailed demand letter, especially one that outlines the company’s and its senior executives’ violations of the law or public policy as a foundation to a Conscientious Employee Protection Act (CEPA) claim would be subject to disclosure to the SEC.  

Balancing Disclosure and Protection

This poses a complicated game of chicken between the type of written documents being created and provided by the officer/director to the company to protect them against retaliation.  Of course, employers always argue that they had no credible notice or evidence of the issues being raised by the employee to support their CEPA claim, yet the written disclosures of their violations of the law and/or public policy are likely to cause the company great damage through the publicly filed 8K.  

Consulting with an Attorney

When you are an officer and/or director of the company, it’s important to discuss the implications of these communications with your attorney.   These are delicate calculations that affect your ability to find new employment, to craft the narrative of the issues causing your exit from the company, and correspondingly protect the company and its shareholders.  Familiarize yourself with your company’s prior 8K filings, particularly when representing the exit of another officer/director to see how they are likely to handle the issue.  And if you have decided to engage in verbal conversations with other officers, directors, and/or the company’s general counsel, make sure you document, for yourself, the dates and times of the conversations, the substance of the discussions, the individuals present for the discussions and any other relevant information which will refresh your recollection later in the process. Contact Hamilton Law Firm for further assistance.